What is Modified Coinsurance and How it Works
A reinsurance contract is essentially a contract between a ceding insurance company as well as a reinsurance company. Under plain vanilla reinsurance contracts, the premiums, as well as risks, are transferred proportionately from the ceding insurer to the reinsurance company. In some cases, this arrangement is not acceptable to one or both of the parties. […]
Using Internal Loss Data to Mitigate Operational Risks
The modern approaches to risk management are data-driven. There are four basic steps to this approach which we will study later in this module. The first step contains information about how data related to internal losses suffered by an organization needs to be collected and studied in order to better mitigate risks in the future. […]
How Stock Market Volatility Affects Insurance Companies?
The average consumer believes that most of the money that insurance companies collect in the form of premium ends up in their bank accounts as profits. The reality is that this is not really the case. The reality is that most of the money, collected from premiums has to be paid back either in the […]
The Basics of Unemployment Insurance
The modern multinational company is global in nature. This means that a lot of times work is sent overseas because it is simply cheaper to perform it there. In these cases, employees often lose their source of income even though they are not at fault. After such an event occurs, employees usually find it hard […]
Role of Communication and Relationship for a Healthy Organization Culture
The ideologies, principles, rules and policies of an organization form its culture. The ways the employees interact amongst themselves and with others outside the organization contribute to the culture of the workplace. The culture gives an identity to the organization and makes it distinct from others. Communication and relationship play an important role in a […]
Internal frauds are a big part of the operational risk faced by any organization. This is truer of multinational companies who have business interests in various countries across the globe. This is because there are thousands of people in important positions making business decisions on behalf of the company. Hence, ensuring that all these employees always act in conformity with the company’s principles is a difficult task.
This issue shot into prominence during the turn of the century. The Enron scandal which shook the entire world economy in the early 2000’s also accentuated the need for having proper internal controls in any organization. In response to the Enron Scandal, the United States government passed a landmark piece of legislation called the Sarbanes Oxley Act or SOX. As per the provisions of this act, the management and the auditors of the company are jointly responsible for clearly documenting the internal controls processes and having them certified.
Research has suggested that the lack of properly defined internal controls is the reason for more than 50% of internal frauds in the world. Now, since each company has to document these processes, the Committee of Sponsoring Organizations (COSO) has come up with a framework that can be followed by all organizations in order to develop and document their internal controls. This system has been designed by experts and can be used by any organization to augment its risk management endeavors. The COSO is a committee which composes of five major associations
The COSO framework was first developed in the year 1992. Over the years, it has gone through several iterations and has been revised several times. The model has three dimensions which are why it is often displayed on a cube.
The COSO framework mentions actions that need to be taken within three different functions. They are:
The COSO framework suggests that the organization must be divided into various levels for the purpose of managing internal controls. The internal controls should be continuously monitored at various levels such as subsidiary level, business-unit level, division level as well as entity level.
The COSO model emphasizes that all five components work together as an integrated system. The malfunction of any one component would also impact all the other components as well. The idea behind the framework is to provide a set of tools that will have to be used by every company. The specific organization can then go ahead and decide on the specific methods that they want to follow for controls or for information management. The standardized model makes the implementation of risk management comparatively easier.
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