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

2. Enterprise Risk Management (ERM) is a process:
What is Enterprise Risk Management (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 provide reasonable 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
To successfully manage risk, the ERM initiative must be:
• Enterprise wide
• Viewed as an important strategic effort by senior management
• Driven from the top down
• Clearly & consistently communicated to/from the Board & Senior
Management
Support from the Board of Directors and senior management is essential to ensure alignment of focus, resources and attention for ERM.

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
Impact Level
Customer Service/ Reliability
Environmental
Financial/ Credit
Severe (5) **
Major (4)
Significant (3)
Moderate (2)
Minor (1)
** Risk Tolerances criteria need to be determined on a Company and Business unit basis

9. Determine Risk Tolerance
Impact Level
Health/ Safety
Reputation
Workforce
Severe (5) **
Major (4)
Significant (3)
Moderate (2)
Minor (1)
** Risk Tolerances criteria need to be determined on a Company and Business unit basis

10. 5 Colors Heat Map 5 Colors Heat Map 5 4 3 2 1 10 15 20 25 8 12 16 6 9
Top Corporate Risk
Score
Tier 1
10-25
Impact x
Likelihood
Tier 2
5-9
Tier 3
1-4
Almost Certain
>90% 5 10 15 20 25
15-25
Red
Likely
65-90% 4 8 12 16
10-12
Orange
Possible
35-65% 3 6 9
8-9
Yellow
Unlikely
5-35% 2
4-6
Light
Green
Rare
<5% 1
1-3
Dark
Minor
Moderate
Significant
Major
Severe
Impact

11. ERM Risk Considerations
ERM Terminology
Terminology
Definition
Objective
The main reason(s) for the existence of a process, activity, or project.
Risk Description
Condition (trigger event) that can result in a Quantified Consequence
Inherent Risk
the uncontrolled risk, prior to implementing any mitigation efforts
Risk Tolerance
the level of risk you are willing to take
Impact
the level that the event affects meeting your objective
Minor (1) • Moderate • Significant • Major • Severe (5)
Likelihood
the probability that the event will happen
Rare (1) • Unlikely • Possible • Likely • Almost Certain (5)
Controls
Existing activities that reduce the inherent impact and/or likelihood of the risk
Residual Risk
the risk that remains after Controls have been implemented ( is it acceptable based on Risk Tolerance?)
Mitigations
Required actions to reduce the residual impact and/or likelihood to an acceptable Risk Tolerance level.

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. Risks That Could Effect JEA’s Objectives:
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:
Enterprise Compliance & Risk Committee
Subordinated Committees
Risk Working Groups
Comprised of the most senior
executives
Led by business executives
Subject Matter Experts
supporting Subordinate
Committees
Makes all major risk &
compliance decisions
Coordinate mitigation efforts
across functions
Assist in determining mitigation
strategies
Approves risk score changes and
additions/removal of risks
Make recommendations to
ERCRC on major risk decisions
Implement and assess mitigation
effectiveness and challenges
Evaluate & monitor risk levels,
gaps, & mitigation efforts
Approve less significant risk \
decisions
Identify evaluate top corp. risks

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. Director Audit Services & Chief Risk Officer
Treatment of proceeds and bond issue costs per the Bond Resolution, establishment of reserves and adequacy of documentation.
Internal Audit / ERM
INTERNAL AUDIT ERM
CEO
Board of Directors
Director Audit Services & Chief Risk Officer
Audit Manager
ERM Manager
Internal Auditors
ERM Analyst
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 IIA standards
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
Develop risk reporting protocols including communication processes, target audiences, and reporting formats.
Reporting must clearly:
• reflect the relative significance of each risk
• identify gaps in controlling/reducing the inherent risk
• track progress on mitigation efforts

20. 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
Sustaining ERM
Given the evolutionary nature of ERM and the dynamic nature of risk,
the ERM process must be:
• ongoing
• not viewed as a one-time event.
The initial risk assessment process needs constant monitoring and updating.
The entity needs to be attuned to identify new and emerging risks.

22. Why does JEA do Risk Management?
Sustaining ERM
Why does JEA do Risk Management?
Sustaining ERM
Ongoing communications from senior management and training will serve to
reinforce and nurture the risk management culture. Including but not limited to:
Developed:
•Board and corporate policies and practices for ERM
•Continuing ERM education for the directors and executives
•ERM education and training for business-unit management
•Policies and action plans to embed ERM processes into the business units
Establishing clear linkage between strategic planning and budgeting processes
Defining risk appetite(tolerance) for the organization and/or significant business units, including quantification of risk exposure

23. Risk Assessment and Action Plan
4. Conduct an Initial Enterprise-wide
Risk Assessment and Action Plan
ERM Program Summary
Seek Board and Senior Management Involvement and Oversight
Identify and position a leader to drive the ERM Initiative
Establish a Management Working Group
Establish Risk Tolerance
Conduct an Initial Enterprise-wide Risk 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. Florida State Board of Accountancy #0016036 1Credit Hour AA
Questions?
Introduction to ERM
Florida State Board of Accountancy # Credit Hour AA