For wealthy families, the concept of managing risk typically involves two specific dimensions: preserving or safeguarding current assets and optimizing future gains.

Where a family's goals fall on this spectrum helps set the tone from the top regarding risk management and guides the family office's operations and the measures it puts in place to deliver on expectations.

A family office's approach to managing risk depends on many factors, including the size of the office, the experience levels of its personnel, and the office's stage of development. For family offices of all sizes, though, a sound framework of internal controls can be essential to risk management - helping to protect family wealth and
providing an operational framework on which the office can rely through changing situations.

Internal controls are the processes and procedures that a family office uses to build integrity and security into its critical functions. In a family office environment, some controls serve to strengthen the office's ability to carry out its financial responsibilities, including managing cash and investments. But, there are additional types of
internal controls that can protect the family office from information technology (IT), payroll, and other risks.

The sooner that a family office introduces internal controls, the better equipped it will be to manage risk and discourage inconsistency and unreliability in its management of the family's affairs. Because risks evolve over time, particularly as personnel and systems change, it is a good idea to conduct a formal risk assessment, discussed further in this document, every couple of years to confirm that controls are focused in the right areas.

Internal controls will not prevent every occurrence of error or fraud, but they can be one of a family office's recognized available tools for mitigating risk and a vital complement to the family's governance strategy. This article explores some of the questions that families and family offices can consider as they evaluate risk and put in  place the right types of controls to manage it. What are internal controls and why are they important in a family office environment? What can a family office do to evaluate the appropriateness of its existing controls or need for additional controls? And, how does the current economic environment change the need for internal controls?

While risk management is a broad and complex topic, we hope that this article helps further the dialog between families and family offices with respect to preserving and protecting family wealth.