Pub. 1 2012 Issue 5

20 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s Enterprise Risk Management for Smaller Financial Institutions I n today’s challenging regulatory environment, identifying and managing risk is a top priority for financial institu - tions. While enterprise risk management (ERM) has been a common process for larger institutions for a number of years, the process is becoming more commonplace. Institutions of all sizes have performed a variety of risk assessments, such as internal audit, information technology and regulatory compli- ance, for many years. The risk assessment process is now evolving into a comprehensive, institution-wide process encompassing areas of risk not previously identified and evaluated. ERM encompasses all areas of potential risk within an organization, including inherent risks. Each institution must identify, evaluate and monitor these significant risks, both internal and external, on an ongoing basis. It also must develop a process for responding to identified risks. In fact, many institutions implementing ERM will integrate it as part of their culture and overall control environment. Key potential risk areas that should be included in ERM are: • Credit • Liquidity/Interest Rate/Market • Operational/Transaction • Compliance • Fiduciary/Litigation Many smaller institutions will assign overall ERM responsibility to their board of directors through an ERM charter. The board is responsible for monitoring the institution’s risk management objectives and the processes used to evaluate them. Smaller institutions will integrate existing risk assessment processes, such as internal audit, information technology and regulatory compliance, into an overall ERM approach. They also will expand the responsibilities of the bank’s existing committees, such as audit, asset liability, technology and regulatory compliance, to include ERM as part of their risk management program. Key steps in implementing ERM include: • Developing an ERM charter that outlines the institution’s plan for implementing and monitoring ERM • Developing comprehensive risk management objectives and aligning them with the institution’s strategic goals and objectives • Integrating the concept of risk management into all areas of operations • Identifying significant risks and developing a process for evaluating, monitoring and reporting them • Developing a plan for review and measurement ERM is rapidly emerging as a focal point of regulatory agencies. Developing an approach to ERM that integrates existing risk manage - ment processes with the broader focus of ERMwill be critical to efficient and effective transition. It also will provide the appropriate level of risk management as banks work to achieve their strategic objectives. As national industry partner for BKD National Financial Services Group and chair of the firm’s Financial Services Committee, Don over- sees a team of more than 200 advisors who serve more than 1,200 fi- nancial institutions. He also serves as chair of Praxity’s Financial Services Working Group. Praxity, AISBL provides the gateway to tax, assurance and consulting services delivered by alliance firms com- mitted to the highest standards required in international business. With more than 30 years of industry experience, he provides consult- ing in the areas of regulatory issues, management assessments, profit planning, long-range strategic planning, regulatory report preparation and acquisitions, as well as managing audits and directors’ examinations. Industry associations he’s active in include the American Bankers Association, Financial Mangers Society, Independent Community Bankers Association, Community Bankers Association of Illinois, Missouri Bankers Association and Missouri Independent Bankers Association. He is a member of the Missouri Bankers Association Executive Management, Convention Planning and Associate Member committees. Don is a frequent guest speaker for these and other financial industry associa- tions and a contributing editor for BKD’s financial services e-newsletters. He is a member of the American Institute of Certified Public Accountants and Missouri Society of Certified Public Accountants and also supports numerous community organizations. Don is a 1979 graduate of Truman State University, Kirksville, Missouri, with a B.S. degree in accounting. Donald Hutson Jr., BKDNational Financial Services Group • Reputation • Financial • Technology • Strategic