RISK MANAGEMENT IN MUNICIPALITIES

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RISK MANAGEMENTIN MUNICIPALITIES

• INCA LOCAL GOVERNMENT
• SUMMER SCHOOL 2004

Lucas Opperman Director LGC Consultants
November 2004
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GENERAL APPROACH TO RISK MANAGEMENT

• Risk categories
• Strategic
• Operational
• External
• Physical
• Financial

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GENERAL APPROACH TO RISK MANAGEMENT

• Purpose of risk management policy
• balance sheet protection
• business continuity
• protection of reputation
• defining management roles and responsibilities
• defining reporting framework

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GENERAL APPROACH TO RISK MANAGEMENT

• Risk management framework
• identification, evaluation and documentation of
  risks
• measurement of risks quantitative and
  qualitative
• determination of processes to avoid, mitigate or
  manage identified risks
• determination of maximum risk exposure (risk
  tolerance)

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GENERAL APPROACH TO RISK MANAGEMENT

• Risk management framework
• reporting of risks frequency and format
• moderate levels of risk are acceptable
• identification of priority risk areas safety
  and security, public health, environment, service
  delivery, financial administration
• annual review of risks and risk management
  framework

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Kinds of risk
• external risk
• public liability (persons, assets, environment,
  public health)
• non-performance (legal, contractual and
  reputational repercussions, public protest,
  intervention)
• external origin
• non-payment
• acts of God

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Kinds of risk
• internal origin
• physical losses and damages
• mismanagement of resources (low productivity,
  poor or non-performance, waste, losses)
• financial losses
• prejudice to municipalitys interests (wrong
  tenders, wrong strategic decisions, wrong
  appointments)

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Kinds of risk
• internal origin
• physical losses and damages
• mismanagement of resources (low productivity,
  poor or non-performance, waste, losses)
• financial losses
• prejudice to municipalitys interests (wrong
  tenders, wrong strategic decisions, wrong
  appointments)

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Causes of risk
• human frailty crime, negligence, mismanagement
• poor control environment
• change
• size and complexity
• political divisiveness

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk
• GOOD GOVERNANCE
• accountability and transparency
• much useful guidance provided in current
  municipal legislation
• either obviate risk, identify it timeously or
  minimise its impact

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• sound financial policies provide required
  governance framework
• fixed assets
• budgeting
• credit control and revenue collection
• supply chain management
• rates and tariffs
• indigency management
• banking and investments
• subsistence and travel

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• reliable financial systems which are
  understandable and auditable
• cash management
• budgetary management
• revenues and expenses
• debtors and creditors
• fixed assets
• stores
• payroll
• credit control

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• general systems
• PMS with performance controls
• workable political and administrative structures
• delegations
• statistical systems
• human resources
• service delivery
• distribution losses

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• proper reporting structure internal and
  external
• excellent prescribed accounting and reporting
  standards
• from draft budget to annual oversight report
• regular, consistent, timeous, complete,
  up-to-date, transparent
• management reporting (FMIS)
• knowledge is strength

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• ratios and benchmarks
• based on own past experience or experience of
  comparable enterprises
• determined according to own performance
  objectives
• industry norms tread with caution
• (generic formulae based on averages)

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• sound control environment
• division of responsibilities
• budget comparatives
• fixed assets
• stores
• payments
• procurement
• cash
• accounting reconciliations
• financial regulations

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• insurance
• financial protection against consequences of
  unforeseen events
• reliable claims statistics
• public liability, movable fixed assets, current
  assets
• internal reserve
• reinsurance

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• internal audit
• resources (human and equipment)
• skills
• knowledge
• independence
• statutory requirement risk-based audit plan for
  each financial year
• includes
• internal controls
• accounting procedures and practices
• risk and risk management
• performance management
• loss control

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• audit committee
• independence
• skills
• knowledge
• advisory role 
• internal audit
• financial controls
• accounting policies
• risk management
• quality of financial reporting
• performance management
• effective governance

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PRAGMATICS OF MUNICIPALRISK MANAGEMENT

• Counters to risk good governance
• roles of Province and National Treasury
• good work ethic
• probity
• commitment
• transparency and accountability
• codes of conduct