Describing SAP's Enterprise Governance, Risk, and Compliance (GRC) solutions in the context of the Three Lines of Defense (3 LoD) approach

The 3LoD Model is applicable across all business objectives and all risks. It supports companies:

• Establish clear responsibilities, accountabilities, and oversight roles for managing risks, compliance, and control across the enterprise.​
• Establish compliance and control frameworks to evaluate, test, and continuously monitor risks, business controls, and related compliance to avoid unnecessary duplication of activities.
• Optimize the internal audit process with high volume, real-time data analysis, and shared data across the 3LoD.  

SAP Risk Management and Process Control support the first line of defense by empowering operational management to identify, assess, and manage risks in their day-to-day activities. Through functionalities such as risk assessment tools, control monitoring dashboards, and automated compliance checks,  both solutions help operational teams proactively address risks, ensure compliance with policies, and achieve business objectives.

Second Line of Defense (Risk Management and Compliance)​

For the second line of defense, SAP GRC solutions (SAP Risk Management and Process Control) provide robust risk management and compliance functionalities. These include tools for establishing risk and control frameworks, conducting risk assessments, defining compliance policies, and monitoring regulatory changes. It provides a centralized repository for managing risks, automated processes, and the ability to generate real-time reports. Furthermore, it empowers risk management and compliance teams to offer support, supervision, and assurance to operational management.​

SAP Audit Management supports the third line of defense by facilitating internal audit activities. With features such as audit management, issue tracking, and continuous monitoring, SAP helps internal audit teams conduct independent assessments of risk management practices and internal controls. ​

Through customizable audit plans, automated testing procedures, and comprehensive audit trails, internal auditors can assess the efficacy of risk management practices and offer assurance to senior management and the board of directors.​

SAP GRC solutions promote an integrated approach to governance, risk management, and compliance, aligning with the principles of the 3LoD model. By providing a unified platform for managing risks, controls, and compliance activities, SAP enables organizations to streamline their GRC processes, improve collaboration between different lines of defense, and enhance overall governance practices. This integration ensures that risk management efforts are coordinated, transparent, and effective across all levels of the organization, ultimately helping organizations achieve their strategic objectives while maintaining regulatory compliance and minimizing risks.​

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• Identify and assess risks associated with their specific area of responsibility or business unit.
• Evaluate the significance of identified risks in terms of potential impact and likelihood.
• Implement controls and measures to mitigate identified risks.
• Ensure compliance with relevant laws, regulations, and internal policies within their operational activities.
• Report on the status of risks and mitigation efforts to higher levels of management or the risk management function.
• Respond promptly to incidents or issues related to risks within their area of responsibility.
• Foster a culture of risk awareness and accountability within their operational unit.
• Identify opportunities for improving risk management processes and practices.
• Work closely with risk management, compliance, and internal audit functions to ensure alignment on risk management objectives and strategies.
• Contribute to business continuity planning efforts by understanding and addressing operational risks that could impact business continuity.

SAP Risk Management and SAP Process Control support these tasks by providing functionality to assess risk, determine the appropriate response, automate response-monitoring activities, and raise issues encountered in business operations.

Sudha manages risks by identifying deficiencies where risks were not adequately managed. Examples include errors in financial reporting, unacceptable inventory stock losses, or other errors or deficiencies. She documents these procedures and reports any issues or incidents to the second line of defense.

Naresh, the Risk Manager at CRG International, Inc., is responsible for setting the overall design and standards for the risk management practices. Let’s look at Naresh’s task checklist.

• Continuously monitor risks and compliance.
• Define risk appetite and tolerance levels in collaboration with senior management and the board of directors.
• Regularly report on the status of key risks and risk management activities to senior management and the board.
• Assess the effectiveness of risk controls and mitigation strategies implemented by the first line of defense.
• Provide guidance to the first line on implementing and adhering to risk management policies and procedures.
• Coordinate with legal and compliance functions to address regulatory requirements impacting risk management practices.
• Conduct periodic reviews, assessments, and audits to ensure compliance with internal policies and external requirements.
• Promote a culture of risk awareness and accountability within the organization.
• Ensure that key stakeholders are informed about significant risks, issues, and developments impacting the organization.
• Provide risk-based recommendations to senior management to support decision-making processes.
• Implement improvements and initiatives to strengthen risk management capabilities and resilience.
• Work closely with the internal Audit team (third line of defense) to implement advice to improve risk management processes.

SAP Risk Management and SAP Process Control provide specific functionality to support these tasks.

Naresh measures the performance of his work as the second line of defense by aggregating and reporting results on the effectiveness of overall operations and performance to the first line. He also collaboratively aligns with the internal audit team (third line of defense).

This is Anuj, an internal auditor at CRG International, Inc, forms the third line of defense. Let’s look at Anuj’s task checklist.

• Develop an annual audit plan based on a comprehensive risk assessment that considers the organization's strategic objectives and significant risks.
• Conduct audits and reviews to assess the effectiveness of internal controls, risk management practices, and governance processes.
• Verify compliance with laws, regulations, policies, and procedures governing the organization's operations.
• Review operational processes and procedures to identify inefficiencies, gaps in controls, and opportunities for improvement.
• Audit financial statements to ensure accuracy, completeness, and compliance with accounting standards and regulations.
• Investigate allegations of fraud, misconduct, or unethical behavior within the organization.
• Prepare audit reports summarizing findings, conclusions, and recommendations based on audit engagements.
• Monitor the implementation of audit recommendations to ensure corrective actions are taken in a timely manner.
• Provide advisory and consulting services to management on risk management, internal controls, and governance matters.
• Continuously improve audit methodologies, processes, and practices to meet evolving organizational needs and industry standards.

SAP Audit Management provides capabilities to maintain a risk-based audit universe, automate assessments of risk-response effectiveness, and provide assurance and advice to the first and second lines. It also provides assurance and insight to the board and other executives.