Due Diligence as a Way of Life

By Lowers & Associates,

due diligence

The phrase “Due diligence” sounds complicated but in reality, it is simply the process of doing your homework before you make a major commitment, either on a business or personal level.  Due diligence can be as simple as just asking the proper questions and making sure that a situation is “not too good to be true.”  This idea of checking into the facts behind a transaction to ensure it is fairly valued is the source of the old adage, “let the buyer beware.”[i]

Most of us practice due diligence even though we may not think of it that way.  For example, most people these days will do some research on the internet before making a major purchase, like buying a car.  We scan websites to get an idea of a fair price, the dealer cost, and any low interest financing deals so we can be prepared to counter the ”rock bottom price” offered by the car salesman.   In this process, we are doing our “due diligence” to get the best deal possible.

Due Diligence as a Defense

There are important legal uses of the term “due diligence.”  It began as a term describing a legal defense in the Securities Act of 1933.  Its purpose in that Act was to give broker-dealers a defense against an accusation that they had not disclosed information in a securities transaction.  If they had performed “due diligence” in researching the company, they could not be held liable for information they did not discover.[ii] … Continue reading

How Can You Cut Your Organization’s Risk of Fraud by 50%?

By Lowers & Associates,

compliance training

You’ve seen the data before: Organizational fraud is a huge annual cost. Managers want to reduce the costs, so the real questions are to learn why fraud occurs and what to do about it.

The most compelling explanation for organizational fraud is the Fraud Triangle, as summarized in our recent infographic. Frauds occur when there is opportunity, one or more employees are under perceived financial pressure (incentives exist), and they can rationalize their fraudulent behavior. These 3 factors correspond to the legs of the triangle.

Control the Opportunities to Reduce the Chances of Fraud

In our experience, organizations can reduce the probability of organizational fraud by just removing one of those legs of the triangle. There are things you can’t control, such as employees’ spending habits, but if you remove the opportunity for employees to get their hands on an asset without the potential of getting caught, then you’ve reduced that probability by 50 percent. … Continue reading

  Category: Risk Management
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7 Resolutions for Better Risk Management in 2014

By Lowers & Associates,

risk management articles

It’s that time of year when we have resolved to do better. Most business owners or managers have probably resolved to increase revenue and profits in the New Year. We urge you to include improving your risk management performance, too. By identifying and mitigating the risks you face, those bottom line resolutions you make are more likely to come true.  You need to reduce losses as well as increase revenue.

First, Have a Risk Management Plan

The first resolution has to be to have a risk management plan, and implement it. We sometimes get so immersed in our own work that we forget that there are managers and companies who do not take adequate steps to identify and manage the risks to their businesses. And others have a mistaken belief that they have a risk management plan just because they bought some insurance.

Some recent research by Chubb Group of Insurance Companies shows that both public and smaller private companies have significant gaps in risk management. A 2012 survey of public companies found that 2 out of three companies still do not have cyber insurance even though an electronic breach of data was seen as the most pressing risk. Similarly, 42% of these companies reported experiencing an employment practices liability event, yet some of them still do not have risk management tactics in place to mitigate this risk.

A related study conducted in 2013 found that smaller private companies may have invested even less in risk management despite the fact that 1/3 of them experienced a loss event in the past 3 years.  Those that do take risk mitigation steps, like background screening, often mis-use the tactics.  Some key findings from that research include:

  • Most firms believed their general liability insurance protected them from most of the risks they face, including cyber losses, fiduciary liability, and employment practices liabilities.
  • 42% of the companies had broad exclusionary policies toward criminal backgrounds, exposing them to legal action by the EEOC or other agencies.
  • 68% of companies use social media, but only 12% have usage policies for employees.
  • Many companies use cloud providers for data storage, but only half of these have plans in place for cyber breaches.

There is a lot of room for improvement. … Continue reading

  Category: Risk Management
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Where Do Compliance and Risk Management Meet?

By Lowers & Associates,

Internal Control Compliance

A recent article by A-J Secrist of Parker Poe Adams & Bernstein examines the relationship between risk management and compliance. Some analysts distinguish between these two things, with risk management more a strategic concern and compliance an operational one driven by regulatory oversight. Others might go in the opposite direction and confuse a compliance program with performing risk management.

There is no doubt that there is a distinction between risk management and compliance, simply because the functions may be performed by different people within an organization, and at different levels. However, as Secrist points out, “In essence, noncompliance is a type of risk.”

Compliance is a key element of a comprehensive risk management plan. … Continue reading

CFO Risk Management Tilts the Business Trajectory

By Lowers & Associates,

compliance training

An interesting new survey of CFOs from TD Bank suggests that there is a strong corollary between increasing confidence in the business environment and a willingness to take on more risk, which can lead to further growth. In this context, it is a CFO’s ability to manage risk that tilts the business trajectory into an upward direction.

However, it’s important to note that only a minority of the CFOs who are more confident in their risk management abilities plan to take on more risks.  The anemic economic recovery is still producing headwinds. … Continue reading