The real estate industry is not immune to risks, and therefore could greatly benefit from the three lines of defense
model as part of the organization’s enterprise risk management program and initiatives. As many of the real estate
companies have rapidly expanded in both revenue and size in recent years, related issues of rapid growth has been
exposed. Increase in revenue, size of companies, and number of employees has brought various risks, chances for
mistakes and opportunities for fraud.
Let’s take the example of Real Estate Investment Trusts (REIT). There are a number of risks for REITs related to
fraud, data integrity, being out of compliance with regulations, expanding into international markets, and the use of
third party service providers. Likewise, construction management faces numerous risks in the areas of construction
contract negotiation, contract compliance, project monitoring and construction related litigation support.
In order to operate effectively and maintain sustainability, organizations need a major change in how they approach
risk management. Investors and regulators are highly sensitive to how an organization manages its risks. If an
organization does not identify, monitor, and correct undesirable risks, then it will perpetuate an attitude toward
risk that could lead to a loss of control throughout the organization, which may ultimately create a loss in business
value. Thus, the Lines of Defense model helps to define fundamental roles and responsibilities by placing primary
accountability for risk where it originates. Lastly, an effective risk management program based on this model brings
tremendous value to an organization:
• Alignment of risk appetite and strategy
• Enhanced risk response and decision making
• Reduced operational surprises and losses by facilitating a coordinated response to risks
• Effective financial reporting
• Compliance with laws and regulations
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Ashwani Verma is a partner in BPM’s Risk Assurance and Advisory Services Group. Contact Ashwani at [email protected] or call
415-677-4502.
Shannon Conner is a Senior Assurance Consultant at BPM. Contact Shannon at [email protected] or call 415-288-6262.
BPM Real Estate Insights
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