Fundamentals of Risk Management

Risk strategy
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Risk control actions related to fraud can be divided into the categories listed 
above as preventive, corrective, directive and detective. The following methods are 
available to organizations for minimizing fraud:
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improve recruitment procedures;
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reduce the motive for fraud;
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reduce the number of assets worth stealing;
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minimize the opportunity to steal;
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increase the level of supervision;
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improve financial controls and management systems;
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improve detection of fraud;
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improve record keeping.
Historical liabilities
One of the most difficult financial risk areas for organizations is related to their
exposure to historical liabilities. These liabilities arise from previous activities of
an organization, or acquired parts of the organization that were purchased together 
with their historical liabilities.
An area that is very difficult to quantify for industrial organizations is the previous 
exposure to agents that may give rise to delayed industrial diseases. The most
obvious example is exposure to asbestos and the potential for the development of 
mesothelioma, a malignant cancer of the pleura or lining of the lungs. For many
organizations, claims related to mesothelioma arise 30 or 40 years after the alleged 
exposure. Exposure will have occurred at a time when insurance arrangements may 
be difficult to confirm and the evidence of the exact working conditions will no 
longer be available.
Another area of exposure to historical liabilities relates to pension funds. 
Previously, many pension funds offered pension arrangements related to the final 
salary that the employee was earning. These are often referred to as defined benefit 
pension plans. Risks associated with the value of the pension fund and the level of 
pension that the available fund will purchase rest entirely with the employer in a 
defined benefits pension plan.
There has been a strong recent trend towards pension arrangements that build
up a sum of money that is available to the employees to purchase a pension at the 
time of retirement. The member of staff is required to contribute money to his or her 
pension fund, and this arrangement is usually referred to as a defined contribution 
pension plan. In this arrangement, the risks attached to the value of the fund have 
been much reduced and the risk associated with the value of pension that the fund 
will purchase has been transferred to the employee.
The particular risk control issue of concern to employers is related to the defined 
benefit pension plan and the liability to persons who are no longer employed by the 
company but have pension entitlements within the defined benefit pension plan. 
These are often referred to as deferred benefits. The organization will need to look at 
the risk control options for dealing with these deferred benefits. Options available 

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