Establishing an Effective Enterprise risk management (ERM) program

1. Establishing an Effective Enterprise risk management (ERM) program Introduction to ERM Florida State Board of Accountancy #0016036 1Credit Hour AA Presented by: Frank DiBenedetto

2. What is Enterprise RiskManagement (ERM) ? • Enterprise Risk Management (ERM) is a process: • effected by an entity’s board of directors, management, and other personnel, • applied in strategic manner and across the enterprise, • designed to identify potential events that may affect the entity, and • manage risk to be within the risk appetite, • to providereasonable assurance regarding • achievement of entity objectives. • COSO’s Enterprise Risk Management – Integrated Framework

3. Risk Management Approach Attributes of Effective Leaders of Enterprise Risk Management • Broad knowledge of the business and its core strategies • Strong relationships with directors and executive management • Strong communication and facilitation skills • Knowledge of the organization’s risks • Broad acceptance and credibility across the organization • Compliance and risk management framework is • based on best practices from the: • Committee of Sponsoring Organizations (COSO) of the Treadway Commission’s Enterprise Risk Management Integrated Framework. • Project Management Institute’s (PMI) framework on project management risk.

4. Why do an ERM? • #5 Identify potential events (risks) that may affect the enterprise. • #4 Provide managers with ongoing information needed to make best decisions. • #3 Increase confidence of rating agencies, government regulators and other stakeholders • #2 Reduce operational surprises and financial losses to provide reasonable assurance of achieving objectives • #1 Improve allocation of capital and resources

5. Support from the Top is a necessity

6. Corporate Risk Policy Enterprise Compliance and Risk Management Policy Establishes an Enterprise Compliance and Risk Management (ECRM) framework to provide a conscious, systematic, effective approach to managing the compliance requirements, risks and opportunities with the overall goal of reducing negative impacts to the organization. Established the Enterprise Compliance & Risk Committee (ECRC) to implement the policy. Specifically: • Oversee the incorporation of risk management into the major programs, corporate processes and functions. • Ensure adherence to compliance and risk management processes and inclusion of compliance and risk issues in decision making. • Oversee implementation and monitoring of compliance/risk policies and procedures.

7. Conduct the Initial Enterprise-wide Risk Assessment & Develop an Action Plan • ASSESS the organization’s Top Corporate Risks: • •Reach consensus on the Top Risks: those that could potentially have significant impact on the business objectives of the organization • Gain understanding of Risks • • Assign responsibility for managing the risk (cross function ownership) • • Identify controls in place • • Determine how the Top Risks will be managed and/or mitigated • IDENTIFY opportunities to enhance risk management activities • (especially activities that mitigate the Top Corporate Risks.)

8. Determine Risk Tolerance ** Risk Tolerances criteria need to be determined on a Company and Business unit basis

9. Determine Risk Tolerance ** Risk Tolerances criteria need to be determined on a Company and Business unit basis

10. 5 Colors Heat Map

11. ERM Risk Considerations ERM Terminology

12. Risk Assessment Questions • Questions that could be asked to help identify the organization’s most significant strategic or emerging risks: • What are your primary business objectives or strategies? • What are the key components of enabling your business strategy or objectives? • What internal factors or events could impede or derail each of these key components? • What events (external to the organization) could impede or derail each of the key components? • What are the three most significant risk events that concern you regarding the organization’s ability to achieve business objectives? • Where should the organization enhance its risk management processes to have maximum benefit and impact on its ability to achieve business objectives? • •What types of catastrophic risks does the organization face? How prepared is the organization to handle them, if they occur? Attributes of Effective Leaders of Enterprise Risk Management • Broad knowledge of the business and its core strategies • Strong relationships with directors and executive management • Strong communication and facilitation skills • Knowledge of the organization’s risks • Broad acceptance and credibility across the organization

13. Risk Assessment Questions Attributes of Effective Leaders of Enterprise Risk Management • Broad knowledge of the business and its core strategies • Strong relationships with directors and executive management • Strong communication and facilitation skills • Knowledge of the organization’s risks • Broad acceptance and credibility across the organization • Questions that could be asked to help identify the organization’s most significant strategic or emerging risks. • • What financial market risks do you believe are (or will be) significant? • • What current or developing legal/regulatory/governmental events or risks might be significant to the success of the business? • • Are you concerned about any emerging risks or events? If so, what are they? • • What risks are competitors identifying in their regulatory reports that we have not been addressing in our risk analysis?

14. Conduct the Initial Enterprise-wide Risk Assessment & Develop an Action Plan Risks That Could Effect JEA’s Objectives: • Effect JEA’s Objectives: • d Effect JEA’s Objectives: Formalize ERM Governance Structure: to perpetuate and instill ERM throughout management’s decision making and risk mitigation practices

15. Establish a Management Risk Committee Structure Management risk committees, bring together a wide array of personnel from across the entity that collectively have sufficient knowledge of the organization’s core business model and related risks and risk management practices. A risk committee structure should include:

16. Establishing Resources Attributes of Effective Leaders of Enterprise Risk Management • Broad knowledge of the business and its core strategies • Broad knowledge, experience and capabilities relating to risk • identification and management • Strong relationships with mid-level and executive management • Strong communication and facilitation skills • Knowledge of the organization’s risks • Broad acceptance and credibility across the organization Attributes of Effective Leaders of Enterprise Risk Management • Broad knowledge of the business and its core strategies • Strong relationships with directors and executive management • Strong communication and facilitation skills • Knowledge of the organization’s risks • Broad acceptance and credibility across the organization Internal Audit resources can be used as the catalyst to begin the ERM initiative.

17. Treatment of proceeds and bond issue costs per the Bond Resolution, establishment of reserves and adequacy of documentation. INTERNAL AUDIT ERM CEO Board of Directors Director Audit Services & Chief Risk Officer ERM Manager Audit Manager Internal Auditors ERM Analyst Internal Audit / ERM Focus on Current Control Condition • Evaluates existing processes and controls • Tests noted controls • Makes recommendations for deficient controls • Develops annual Audit Plan by conducting Audit Risk Assessment interviews with management Focus on Risk & Control Consciousness • Performs ongoing assessments of risks having greatest impact • Assists management to continuously assess potential risks or ‘what if’ events • Strategizes for long term risk management • Relies on management assertion without testing

18. Audit Services Independence • Maintaining independence between Audit Services and ERM functions • in compliance with IIAstandards • Internal audit should: • document its responsibilities in the audit charter which is approved by the Finance and Audit • committee. • provide advice and support management’s decision making. • recognize any work beyond the assurance activities as a consulting engagement, and the • implementation standards related to such engagement should be followed • NOT manage the risks on behalf of management • NOT give objective assurance on any part of the (ERM) framework for which it is responsible • NOT adversely affect the level or quality of its work due to assuming responsibility for risk • management activities • • ERM guidelines requires that Management: • -remains responsible for risk management • -make risk management decisions themselves • -assume responsibility for assessing and evaluating risks

19. Risk Reporting and Monitoring

20. Enterprise Risk Management – Top Corporate Risks Trends Enterprise Risk Management – Top Corporate Risks Trends – Tier 3 Risks Total Risk Scores should be tracked over an extended time period to assess progress in mitigating the risks

21. Sustaining ERM

22. Sustaining ERM Why does JEA do Risk Management?

23. 4. Conduct an Initial Enterprise-wide Risk Assessment and Action Plan ERM Program Summary Seek Board and Senior ManagementInvolvement and Oversight Identify and position a leader to drive the ERM Initiative Establish a Management Working Group Establish Risk Tolerance Conduct an Initial Enterprise-wideRisk Assessment and Action Plan Inventory the Existing Risk Management Practices Develop Risk Reporting Develop the Ongoing Communications and Training

24. ERM Program Summary ERM is an evolutionary process of: • Determining/revising tolerance for risk • Identifying potential risks (risk inventory) • Assigning responsibility for risks • Documenting controls in place to reduce Inherent Risk • Addressing mitigations required to shrink Residual Risk to fit within Acceptable Risk Tolerance • Monitoring • Re-assessing, revising, reporting, repeating

25. Questions? Introduction to ERM Florida State Board of Accountancy #0016036 1Credit Hour AA