Each year, compliance departments try to figure out how to allocate limited resources across their program. Risk assessments help. Regulatory guidance such as the U.S. Sentencing Guidelines note that an effective compliance program must periodically assess the risk of criminal conduct and take appropriate steps to reduce such risks, as in U.S. Sentencing Guidelines Section 8B2.1(c) (2015). But many risk assessments are fundamentally flawed. Instead of focusing on the future and tapping into the knowledge of the business, they are audits that test various historical components of the compliance program.
Assessing risk effectively involves forecasting in the compliance program—identifying stakeholders from different functions who are knowledgeable about various risks and asking them to project the likelihood and impact of the risk occurring. Effective compliance programs use the results of this forecasting to focus resources on the highest risk. If the forecasters tell you that the environmental risk of certain emissions releases is particularly high with a serious impact to the company, the compliance program may partner with the business to address the risk by implementing controls and investing in equipment.
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