Compliance risk assessment template

Data breaches cost nearly $220,000 more when noncompliance with regulations was indicated as a factor in the event.

Regardless of the industry your business operates in, understanding the implications of non-compliance will protect your business from various ramifications ranging from costly data breaches to reputational damage. 

Compliance risk is the potential consequences your organization will face should it violate industry laws, regulations, and standards.  

In this article, we dig into common types of compliance risk and help you understand your organization's level of compliance risk exposure. We also share best practices for assessing and managing compliance risk so you can understand the risks your organization could face for non-compliance and implement the controls and measures required to keep those risks at acceptable levels.

What is compliance risk?

Compliance risk, also known as integrity risk, is the potential damage businesses face when they fail to comply with industry standards, laws, and regulations. This risk involves both financial penalties and reputational damage.

Organizations of all shapes and sizes are exposed to compliance risk, from the smallest small business to the largest enterprise company. 

For example, a small chiropractic clinic faces compliance risk if they fail to meet HIPAA compliance standards in the same way that a large hospital system would.

To manage compliance risk effectively, an organization must:

• Identify all applicable laws, regulations, and standards that affect the business 
• Discover areas where the organization fails to meet industry laws, regulations, and standards
• Implement controls and procedures to effectively comply with industry laws, regulations, and standards
• Keep up with updates and changes to the laws, regulations, and standards that shape their industry

We’ll discuss compliance risk management in more depth below. Before that, let’s take a closer look at the potential impact of compliance risks. 

Compliance risk impact

Besides financial impact and a sense of professional obligation, there are additional reasons to avoid compliance risks. These include reputational, business, financial, and legal implications that can affect your day-to-day business operations.

Reputational

Failing to comply with industry standards, laws, and regulations can damage your reputation. When your company’s name is in the news for poor compliance management, it’s difficult for customers to trust you. 

Don’t let your reputation suffer due to a breach or by falling out of compliance.

Business

As a business owner, you do not want anything to disrupt your company's ability to operate. Yet failure to comply with certain industry standards can lead to business shutdowns or impact to the way you run your business. 

For example, non-compliance with the Payment Card Industry Data Security Standard (PCI DSS) could lead to the suspension of your ability to accept major credit cards like Visa and Mastercard. Customers might avoid purchasing from your company or walk away if they do not have another payment type with them.  

Financial

The financial impact of compliance risk can be drastic. Lost investors, property, and overall revenue can result from strikes on your account, breaches, shutdowns, and more. 

Financial implications from non-compliance include:

• Loss of investors
• Loss of revenue
• Legal fees  

Legal

If you fail to comply with industry standards and best practices, your legal action may be brought against your company and/or employees.

This can lead to costly fees, penalties, imprisonment, exclusion, or forfeiting products and property. For businesses unable to handle the financial burden, legal issues can often lead to a company shutdown. 

What are the types of compliance risks?

Compliance risk is something all organizations might face, no matter the industry. Below we discuss the most common types of compliance risk.

Privacy and data security

Impact: Legal, financial, reputational

Proper handling of sensitive and confidential data is critical for protecting employees and customers. 

Thankfully there are several laws in place to help protect the privacy of individuals. A few of them include: 

• The Health Insurance Portability and Accountability Act (HIPAA) limits the use and disclosure of patient’s protected health information (PHI).
• The European Union General Data Protection Regulation (GDPR) allows EU citizens to control how their personal data is collected and stored by organizations. 
• The California Consumer Privacy Act (CCPA), similar to GDPR, gives Californians greater control over how businesses use their personal data.  

Workplace health and safety

Impact: Legal, financial, business, reputational

One of the most serious types of compliance risk is workplace health and safety. From accidents to repetitive injuries, risks can happen in any work environment. 

Countries have specific health and safety processes that all organizations and their employees must comply with. The Occupational Safety and Health Administration (OSHA) and U.S. Food and Drug Administration (FDA) have enforced significant penalties to ensure the health and safety of employees. 

Even in low-risk environments such as offices, accidents such as slips and falls still happen. 

Ensure your organization meets industry and federal standards by knowing when and how to report accidents should they occur. Additionally, offer workplace safety training should your industry require it. 

Corrupt or illegal activities

Impact: Legal, financial, business, reputational 

A common type of compliance risk is corrupt or illegal activities. Fraud, theft, bribery, or money laundering are all examples of corrupt and illegal activity. 

As defined in the Foreign Corrupt Practices Act (FCPA) of 1977, it is unlawful for certain individuals to make payments to foreign government officials to help aid in obtaining or retaining business. Under the FCPA, bribery is also unlawful and no form of money should be offered, promised, or given in any organization.   

Process risks

Impact: Business, financial

Process risks refer to day-to-day operations that violate rules and regulations within your industry. Some examples include poor quality assurance, improper machinery maintenance, or even reporting and accounting errors. 

Another example of process risk is human error, which is an unpredictable and unintentional error such as a mental slip. One way to help avoid this is to offer regular training opportunities and ensure that staff know that lines of communication are open at all times. 

Environmental impact

Impact: Legal, financial, business, reputational

The Environmental Protection Agency (EPA) is the federal office in charge of overseeing an organization’s environmental impact. Their main focuses are human health, and ecological effects. 

The potential damage to any and all living organisms and the environment inside and outside of the workplace falls under EPA jurisdiction. 

Companies that have any impact on the environment (such as taking or emitting things into the environment) are required to comply with environmental laws and regulations issued by the EPA such as the Clean Air Act and the Clean Water Act.

Social impact

Impact: Reputational, business

Social compliance is how a company protects the health and safety of employees, its community, and the environment where it operates. How a company approaches social compliance is often governed by its perspective on social responsibility. 

Human rights, diversity, inclusion, community engagement, labor standards, and cybersecurity practices all fall under the social impact compliance umbrella. 

Today, employees and consumers are seeking companies that hold moral standards that mirror their own. Poor internal policies on social issues can lead to boycotts and protests either by employees or customers.

Quality standards

Impact: Legal, business, financial, reputational

Quality compliance risk involves the release of lower-quality products or services that fail to meet industry standards.

For instance, the U.S. Consumer Product Safety Commission (CPSC) works to reduce the risk of injuries and deaths caused by consumer products. By complying with these industry standards, your company can help save lives and prevent injuries. 

Failure to create products that meet CPSC standards can lead to costly consequences such as eating the cost of a product that can’t be sold and addressing the problems that led to non-compliance. 

Compliance risk examples

Compliance risk is not something to sweep under the rug. Aside from legal fees, there are serious data security risks, liability concerns, and the potential to damage your reputation. 

Here are a few compliance risk examples that illustrate the importance of meeting industry standards.

How to conduct a compliance risk assessment

To fully understand the compliance risk your business faces, you need to conduct a compliance risk assessment. These assessments evaluate potential risk factors that could threaten your company’s ability to adhere to industry laws and regulations. Performing them periodically is a key part of compliance risk management.

Below are key steps to assessing compliance risk.

1. Identify compliance requirements 

Compile a list of all the regulatory requirements that apply to your business and identify compliance gaps. 

You can download the template below to identify all applicable laws, regulations, and standards that affect your business. Use it as a starting point for your compliance risk management efforts.

2. Send out a compliance risk assessment questionnaire

In order to successfully identify, analyze, prioritize, and mitigate compliance risks, you need to understand the departments and outcomes that would be affected by potential risks.

A compliance risk assessment questionnaire can be a powerful way to gather feedback from key stakeholders in different departments in order to get a more complete assessment of the risks that your organization faces. 

Based on the results of the questionnaire, you can understand more clearly where you need to allocate resources to mitigate risks. 

Here are some sample questions you may include in your questionnaire:

• Does the company have a risk assessment process in place?
• Do you agree with the top risks that have been identified by organizational leadership?
• What operational controls exist to ensure compliance with applicable industry standards, laws, and regulations?
• What is the process for developing and updating the department policies and procedures?
• How do you verify policies and procedures are being accurately implemented?
• Do you feel confident in identifying and reporting potential compliance issues?
• How are the risks to the organization currently managed?
• What is the process for training the department on internal and/or external compliance requirements?
• Do you work with any third-party vendors or partners? If yes, do you believe that these third parties adhere to the organization’s compliance standards?
• Do you operate in any countries or jurisdictions that require you to comply with any specific frameworks, laws, regulations? 

3. Evaluate the likelihood and potential impact of each risk

Using quantitative or qualitative measures, assess the likelihood that each risk will occur and the level of impact or magnitude of harm that can be expected if it does occur. This will help determine your inherent risk exposure, which is the exposure to risk that exists in the absence of controls or mitigation strategies.

Use the template below as a starting point for assessing risks. It is tailored for non-adversarial risk, but you can use it to assess adversarial risk by replacing “range of effects” with “threat source characteristics.”

Risk assessment software can help simplify and streamline this process. In addition to helping ensure each risk is assessed and reported in a consistent and repeatable manner, risk assessment software can also help save you time. Secureframe, for example, offers Comply AI for Risk to automate the risk assessment workflow. This eliminates manual analysis and provides almost instantaneous insights into each risk based on the risk description and company information, including its potential impact, likelihood, and recommended treatment, with clear justifications for each output.

4. Prioritize severe risks

Address compliance risks based on their likelihood to occur and the severity of the impact they pose to your business. You’ll want to prioritize mitigation efforts for severe risks. Risk mitigation refers to remedial or corrective actions taken to reduce the level of risk until it falls within the organizational risk tolerance.  Mitigating efforts may include operational processes, policies, and technologies designed to reduce the probability or impact of a risk. For example, conducting regular information systems backups can help mitigate the risk of accidental data loss.

Once you mitigate risks at the highest level, you can continue addressing the lower levels as time and resources allow.

5. Indicate risk treatment decision and plan

While risk mitigation is the most common, there are other ways you can respond to risks. You can accept risks as is. You can transfer or share them. You can avoid them. You can remediate or resolve them. 

Here is how you should think about each risk response:

• Risks that fall within your organization’s risk tolerance levels can be accepted. The only risk response needed is monitoring.
• Risks that can be reduced to an acceptable level in a cost-effective way should be mitigated or transferred. You may respond to these risks by implementing controls that help prevent or limit the loss if a threat event occurs.
• Risks that cannot be reduced to an acceptable level in a cost-effective way should be avoided.
• If a solution or remediation is implemented, a risk can be resolved.  

For every risk identified in a risk assessment, decide on a risk response, then create and share risk treatment plans with stakeholders for addressing potential risks if they were to happen. 

Creating a risk register can help your organization keep track of these risks and treatment plans and adjust them over time to keep overall risk within the organization’s tolerance.

Risk register software makes it painless to create a risk register and keep it up-to-date with new risks and information. The Secureframe risk register and risk dashboard, for example, areeasy to update and view at-a-glance so your organization can stay aware of and assess risk changes, review risk and performance results, and continually improve its risk management processes to help the organization achieve its objectives. Learn more about Secureframe's new Risk Management tool.

6. Evaluate residual risk

Determine the extent to which these actions would reduce risk. Effective risk mitigation strategies, like employee training, can reduce the likelihood and potential impact of compliance risks. The risk that remains after treatment is known as residual risk. If residual risk is still not an acceptable level, then you should plan to implement additional controls.

7. Perform compliance risk assessments periodically

Like any type of risk assessment, compliance risk assessments should be performed at least annually to assess your current risk exposure.

Compliance risk assessment template

We’ve created this simple compliance risk assessment example to help you think through your business’s top compliance risks. Use it as a starting point and customize it as needed to fit your business and the industry standards, laws, and regulations it must comply with.

What is compliance risk management?

Compliance risk management is the process of understanding the potential legal penalties, fines, business losses, and reputational losses your organization could face for non-compliance and implementing the controls and measures required to keep those risks at acceptable levels to your board and regulators.

Like any risk management program, a compliance risk management program is designed to mitigate compliance risk — not to eliminate it altogether. That would be impossible for any company, no matter its budget or resources. There is always going to be some level of risk. 

Let’s clarify the difference between two types of risk management: compliance and enterprise risk management.

Compliance risk management vs enterprise risk management

Compliance risk management is a subset of enterprise risk management that’s tailored to a company’s unique business processes and regulatory compliance requirements, such as SOC 2, ISO 27001, GDPR, HIPAA, and/or other security standards.

While compliance risk management aims to address compliance risks specifically in order to avoid reputational damage, legal penalties and fees, and other consequences of non-compliance , ERM aims to address all risks that might affect the organization’s ability to achieve its objectives and result in losses and liability. These include compliance risks as well as strategic, financial, and operational risks.

Now let’s take a look at some best practices for managing compliance risk.

How to manage compliance risk

Below are some key steps in the compliance risk management process, in addition to conducting compliance risk assessments. 

• Assign risk owners: To properly manage compliance risk, it’s important to define roles and responsibilities. You may identify individuals responsible for managing each type of risk during the assessment process.
• Implement control strategy: Put internal controls and measures in place to address compliance weaknesses.
• Test and validate strategy: Verify the effectiveness of your compliance controls with regular testing.  
• Re-evaluate risks and update routinely: Monitor and update controls as your business grows and industry standards evolve.  
• Implement automated continuous monitoring: An automation platform can continuously check the effectiveness of your controls so you can make necessary adjustments.
• Train your employees: Train employees on the importance of compliance and help them better understand potential risks in their department and mitigation strategies for them.
• Involve leadership: Involve senior management, directors, and the board in the compliance risk management process to ensure they have visibility into any risks that may threaten the company’s strategy and ability to achieve key objectives. 
• Third-party risk: Ensure third-party vendors, suppliers, applications, and contractors are in compliance with the frameworks and regulations they need to comply with as well as your own organizational security and compliance measures.

How Secureframe can help with compliance risk management

Secureframe makes it simple to achieve compliance with laws, regulations, and frameworks specific to your industry so you can focus on growing your business:

• Automate compliance risk assessments: Secureframe’s Comply AI for Risk accelerates the assessment of compliance risks in your environment. This AI solution automates the risk assessment workflow by producing inherent risk score, treatment, residual risk score, and justifications.
• Link risks to controls: Link controls to known risks so that you can coordinate your risk management strategies with your compliance requirements. This can help you assess residual risk so you can recognize and close any gaps in your compliance risk management program.
• Monitor risks 24/7: Continuous monitoring across your tech stack provides complete visibility into critical compliance issues. Track and update risk likelihood and impact as well as risk treatment plans. 
• Track risks in a single platform: Maintain an up-to-date risk register as your products and services, tech environment, and applicable laws and regulations  change.
• Assign risk owners: Configure notification reminders to review and update risks on a regular basis to ensure accountability. 

To learn more about how Secureframe can help you build and maintain a robust compliance risk management program, schedule a demo today.