Oversight Systems’ Financial Executive Survey Shows Enterprise Risk Plagues Corporate America, Despite Confidence in Risk Preparation

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Companies are embracing the concept of enterprise risk management but continue to struggle with implementation according to the findings in the 2006 Oversight Systems Report on Risk Management. The national survey of financial executives also found room for improvement in the way companies assess, manage and prevent risk.

Companies are embracing the concept of enterprise risk management but continue to struggle with implementation according to the findings in the 2006 Oversight Systems Report on Risk Management. The national survey of financial executives also found room for improvement in the way companies assess, manage and prevent risk.

The report (available free at http://www.oversightsystems.com/survey) indicates nearly half of companies surveyed (43 percent) report having faced “significant operational surprises” during the last year.

Executives recognize the value of enterprise risk management with 58 percent of financial executives reporting their company has an enterprise risk management approach and philosophy that considers various interactions among different types of risk. Identical to the 2005 findings, this year 68 percent of financial executives say their CEO is placing greater emphasis on holistic management of all types of risk. However, it appears many critical elements of enterprise risk management are still not in place in corporate America.

Only 33 percent of financial executives say their company has formally trained executives and business line managers to assess the probability of various types of risk, down from 35 percent last year. In addition, 41 percent of financial executives say their company has a widely communicated definition of risk, down from 45 percent in 2005.

“Clearly, executives see a need for more effective risk management because companies are getting burned on a regular basis,” said Dana Hermanson, Dinos Eminent Scholar Chair of Private Enterprise at Kennesaw State University. Hermanson is also an advisor to Oversight Systems. “We still see a gap between top management believing that their company employs enterprise risk management and the reality that they are not pushing ERM down through the organization with awareness and training.”

Enterprise Risk by Business Function

The survey also indicated that organizations are beginning to take risk management more seriously. The financial executives polled reported across the board increases in enterprise risk preparedness during 2006 over 2005. In fact,

  • 85 percent feel prepared for financial-reporting risk, up from 78 percent in 2005
  • 84 percent feel prepared for credit/market risk, up from 68 percent in 2005
  • 80 percent feel prepared for compliance risk, up from 59 percent in 2005
  • 77 percent feel prepared for strategic risk, up from 54 percent in 2005
  • 58 percent feel prepared for human capital/labor risk, up from 56 percent in 2005

Although more than a quarter of executives (29 percent) say technology has no role in their company’s overall risk management, the majority see technology as helpful to their risk management objectives. Nearly a third (31 percent) say technology is used in their organizations to identify existing risk; 24 percent say technology is used to identify existing risk and project future risk; and 16 percent say they use technology to identify existing risk, project future risk and reduce risk.

“After completing their exhaustive work to comply with Sarbanes-Oxley, individuals should feel confident in their controls that address enterprise risk,” Oversight Systems CEO Patrick Taylor said. “However, risk management must be implemented across organizations, and forward-thinking executives are examining the role of technology to facilitate enterprise risk management in their day-to-day operations.”

In addition to the above findings, the full survey report includes data on the effects Sarbanes-Oxley has on risk management, the regulation of executive compensation, ownership of enterprise risk, and opinions on hedge funds.

About the 2006 Oversight Systems Financial Executive Report on Risk

A total of 230 financial executives participated in this study, which was conducted at a number of executive-level conferences during March and April of 2006. Titles of those surveyed included chief financial officer, chief audit executive, controller, internal audit director and treasurer.

This study follows the January release of the 2006 Oversight Systems Financial Executive Report on Sarbanes-Oxley, which identified growing benefits of SOX compliance and specific compliance goals for 2006. Also recently released was the 2005 Oversight Systems Report on Corporate Fraud, a survey of certified fraud examiners which found most fraud examiners view SOX as an effective tool in fraud identification, though few think it will change the culture of business leaders. All these research studies can be downloaded for free by visiting http://www.oversightsystems.com/survey.

About Oversight Systems, Inc.

Oversight takes continuous controls monitoring to the next level by combining controls testing with a real-time transaction inspection to identify the problems in a business process. Oversight’s platform automates the entire life cycle of finding problems in business processes, fixing those problems and proving the problems were resolved. By inspecting each step of individual transactions across systems, Oversight identifies all errors and control violations, drives defect-free processes and sustains Sarbanes-Oxley compliance. For more information, visit http://www.oversightsystems.com.

Editor's note:

Camera-ready charts and graphs of the findings from the 2006 Oversight Systems Report on Risk Management are available by contacting Brian Moran by phone at 404-920-2039.

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Brian Moran