A-123 Aims to Strengthen Government with Enterprise Risk Management

When the Office of Management and Budget (OMB) first released Circular A-123, its intent was to give government a framework for managing risk within agencies. Most organizations, however, tended to place focus on financial risk and A-123’s specific controls addressing, for example, financial reporting.

A major update to A-123, released in July, has broadened the scope of the circular’s requirements, pushing agencies to recognize that risk isn’t just a financial issue but impacts every program.  So, risk management is a responsibility of all agency managers, not just the chief financial officer (CFO).

The circular now requires federal organizations to implement an enterprise risk management (ERM) capability. And that new requirement may not fly if agencies rely too heavily on just the CFO to analyze risk across the enterprise, says Laura Price, Partner and Federal Risk Consulting Leader at KPMG LLP.

“ERM is generally most successful when you empower a person in the agency with the jurisdiction to look across the whole organization and identify risks agency-wide. Many organizations are establishing a Chief Risk Officer, or equivalent.” she says.

For example, risk within vendor supply chains is grabbing attention across government. Imagine buying and relying on components from a vendor who suddenly experiences a hiccup in their supply chain. An agency could very well find itself unable to achieve its mission if the sole provider of an essential business component experiences a lapse in production. Identifying and managing that risk is sound business for government, just as it is in the private sector.

With an enterprise-oriented risk plan in place, agencies can be prepared for that kind of unwelcome surprise. Problems like the hypothetical one above occur when agencies lack strong processes to identify and combat risks which, with a little bit of analysis, could be targeted and proactively—rather than reactively—remediated. And that requires cooperation across siloes.

“Changing a culture to be more risk-focused is not something you do overnight,” Price says.

A good first strategy is to take a “snapshot” of an organization and see what inherent risks exist that could impact the ability to effectively and efficiently execute the mission, what risk mitigation strategies are already in place to address those specific risks, who is responsible for overseeing them and how they all relate to one another.

Price says KPMG helps clients approach risk by looking at programs through an outside lens—handling the lift associated with risk discovery by channeling its knowledge of various carefully studied strategies into a recommended risk management program that fits an agency’s risk profile and appetite.

ERM is an especially salient topic of concern for many government managers as the next administration transitions in.  Managers should be able to articulate their organization’s top risks, thereby helping their new leaders get up to speed quickly on what needs the most focus.  According to Price, agencies looking to implement ERM may benefit from looking to the private sector, or to other government agencies that have similar programs and operations, for precedent on how to make the consideration of risk a regular component of decision-making.

“In the end, I don’t see this becoming something that the new administration fails to embrace,” she says. “It is just so fundamental to good management.”

Ultimately, agencies should rest assured knowing that implementing ERM, though a deliberate and continuous process, is an achievable one. It’s quite a shift for an organization’s culture to move from siloed thinking to enterprise thinking. But the importance of risk management in government is such that where there is a will (and a requirement), there will be a way.

Done correctly, Price says ERM will add value to federal agencies, helping them better understand their risk appetites and inherent risks, develop cost effective mitigation strategies to avoid what they want to avoid and turn risk into opportunity—in short, when agencies can identify their biggest risks, they can become capable of achieving their highest goals.

To learn more about strategically introducing ERM practices in the coming months, dig into KPMG’s recent paper outlining a practical approach to implementation.

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