Risk management implementation in the public sector, “Challenges”

Cleopas Chiyangwa

01 February 2013

TABLE OF CONTENTS

01 January 2013

Risk Management Review: South African Perspective :1 Risk Management Review: International Perspective :2 Definitions of Risk Management: __________________________ :3 Forms of Risk : Strategic_________________________________:4 Forms of Risk : Operational ___________________________:5 Risk Management Context & Analysis(1): _________________:6 Risk Management Context & Analysis(2) : ________________:7 Critical Success Factors for Effective Risk Management______:8 Effective Risk Management Objectives ___________________:9Risk Management & Sustainability_______________________:10

• The development of public finance in the South African public Service started with the country's democracy in 1994.• Policy reforms took place after 1994 necessitating a paradigm shift in the public sector risk arena , an emergence of diverse risk

and uncertainty.

• The public sector is facing challenges of managing risk using an integrated approach.

• The constitution of provides for public administration principles that enforces high levels of responsibility and accountability on public servants.

• The Public Service Act 1994 advocates for a new management framework and risk management is regarded as one of the major planning tools.

• PFMA gives accounting officers responsibility to ensure that an institution maintains effective, efficient, transparent systems of financial and risk management and internal controls

RISK MANAGEMENT OVERVIEW IN THE SOUTH AFRICAN PUBLIC SERVICE

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• Internationally, some countries manage risk by focusing on a particular methodology or model.

• The Canadian Government is of the view that in carrying out risk management, a department needs to do the following;

Explicitly state its objectives; Identify key risks that affect stated objectives; Assess the potential likelihood and impact of occurrence for each identified risk; Develop and document a course of action to mitigate identified risks to levels that are acceptable Continuously monitor internal and external environments for risk and the ongoing effectiveness of

action plans, adjusting the plans where necessary.

RISK MANAGEMENT INTERNATIONAL PERSPECTIVE

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• National Treasury (2005) A continuous, proactive and systematic process, affected by a departments executive authority, accounting

officer, management and other personnel, applied in strategic planning and across the department, designed to identify potential events that may affect the department, manage risks to be within its risk tolerance, and to provide reasonable assurance regarding the achievement of department objectives.

This can be summed up in three key messages.(i) Risk management is the concern of everyone in the department.(ii) Risk management is part of normal day to day business.(iii) Risk management is logical and systematic and ideally should become second nature

WHAT IS RISK MANAGEMENT?

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a) Political: those risks associated with failure to deliver local or central government policy, or meet local peoples administration’s manifesto.

b) Economic: those risks affecting the ability of the department to meet its financial commitments.c) Social: those risks relating to the effects of changes in demographic, residential or socio-economic trends on the

ability to deliver its objectives.d) Technological: those risks associated with the capacity of the department to deal with the pace/scale of

technological change or its ability to use technology to meet changing demands.e) Legislative: those risks associated with current or potential changes in national or provincial and local law. f) Environmental : those risks relating to environmental consequences of progressing the government strategic

objectives , energy efficiency, pollution, recycling and landfill requirements.g) Customers: those risks associated with failure to meet the current and changing needs of customers and

citizens.

FORMS OF RISK: STRATEGIC

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a) Professional: those risks associated nature of profession.b) Financial: those risks associated with financial planning an control, for example under spending and

overspending.c) Legal: risks related to breaches or non compliance with a particular legislative framework or policy.d) Contractual: those risks associated with the failure of contractors to deliver services or products to the

agreed cost and specification.e) Legislative: those risks associated with current or potential changes in national or provincial and local law. f) Environmental : those risks relating to pollution, recycling and energy efficiency of service operations ; andg) Technological: those risks relating to reliance on operational equipment , for example IT systems or

equipment & machinery.

FORMS OF RISK: OPERATIONAL

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RISK MANAGEMENT CONTEXT AND ANALYSIS (1)

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Year Risk Specific Risks2010/2011 As disclosed in note 42 to the financial statements the opening Stationery Controls

balance for moveable tangible capital assets (major assets)has been reduced by R8 094 000 and the opening balancefor moveable tangible assets (minor) increased by R2 833 000,through current year adjustments to prior year balances inorder to address prior year misstatements. Adequate supportingdocumentation was not available to support these adjustments

2010/2011 Inability to obtain sufficient appropriate audit evidence to satisfy Stationery Controlsthe existence, completeness, valuation and allocation of rightspertaining to the moveable tangible capital assets (major assets)operating balances of R21 936 000 and moveable assets(minor assets) opening balance of R2 778 000, and the relatedadjustment of R8 094 000 and R2 833 000 respectively

Source Annual Report 2011/2012:65

RISK MANAGEMENT CONTEXT AND ANALYSIS (2)

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Year Risk ( SCOPA Resolutions) Specific Risks2007/2008 The Department incurred irregular expenditure to the amount of

R6.5 million that relates specifically to gifts and sponsorships in violation of Section 76 (1) (I) of the PFMA read with the Treasury Regulation21.1.1 which provides that donations or sponsorships or gifts in excess of R100000 must be approved by the relevant legislature

Irregular Expenditure

2007/2008 The internal controls of the Department were found to be ineffective in that the Audit Committee and Internal Audit did not substantially fulfil their responsibilities and the financial statements were materially amended during the audit process and the required information or documnets could not be provided timely to the auditors

Internal control weakness

Source Annual Report 2010/2011:82

What are the critical success factors for effective risk management for the Department ?

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Assurance

ERMInternal Audit

Fraud Risk Management

ERM Framework IA Methodology FRM Methodology

Combined Assurance

Methodology

EFFECTIVE RISK MANAGEMENT:OBJECTIVES

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1)To provide an independent, objective assurance on the effectiveness of the Institution’s system of risk management.  (2) Develop an internal audit plan on the basis of the key risk areas.  (3), To ensure that Management, the Risk Management Committee and other officials to carry out their responsibilities.  (4)To develop a risk management policy, strategy and implementation plan 5)    To  develop and disseminate risk reports.

6) To evaluate the effectiveness of the entire system of risk management and provide recommendations for improvement where necessary.

7) To determine whether risk management processes are effective.

8), To establish a Risk Management Committee.

RISK MANAGEMENT & SUSTAINABILITY

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1) Risk Management Structure Each unit is to initiate risk

management as an integral part of its management process.

(2)Existing Management Structures Management advisory Committee Head of Divisions Staff

 

(3) Audit Structures Audit Committee Internal Audit Unit

4) Dedicated Risk Structures Risk Register Risk Committee Risk Management Team

THANK YOU TATENDA

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