Transcript RISK MANAGEMENT IN MUNICIPALITIES

RISK MANAGEMENT
IN MUNICIPALITIES
INCA LOCAL
GOVERNMENT
SUMMER SCHOOL
2004
Lucas Opperman
Director: LGC Consultants
November 2004
GENERAL APPROACH TO RISK
MANAGEMENT
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Risk categories
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Strategic
Operational
External
Physical
Financial
GENERAL APPROACH TO RISK
MANAGEMENT
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Purpose of risk management policy
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balance sheet protection
business continuity
protection of reputation
defining management roles and responsibilities
defining reporting framework
GENERAL APPROACH TO RISK
MANAGEMENT
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Risk management framework
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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)
GENERAL APPROACH TO RISK
MANAGEMENT
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Risk management framework
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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
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Kinds of risk
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external risk
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public liability (persons, assets, environment, public
health)
non-performance (legal, contractual and reputational
repercussions, public protest, intervention)
external origin
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non-payment
acts of God
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Kinds of risk
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internal origin
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physical losses and damages
mismanagement of resources (low productivity, poor
or non-performance, waste, losses)
financial losses
prejudice to municipality’s interests (wrong tenders,
wrong strategic decisions, wrong appointments)
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Kinds of risk
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internal origin
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physical losses and damages
mismanagement of resources (low productivity, poor
or non-performance, waste, losses)
financial losses
prejudice to municipality’s interests (wrong tenders,
wrong strategic decisions, wrong appointments)
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Causes of risk
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human
frailty:
crime,
mismanagement
poor control environment
change
size and complexity
political divisiveness
negligence,
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk:
GOOD GOVERNANCE
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accountability and transparency
much useful guidance provided in current
municipal legislation
either obviate risk, identify it timeously or
minimise its impact
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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sound financial policies provide required governance
framework
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fixed assets
budgeting
credit control and revenue collection
supply chain management
rates and tariffs
indigency management
banking and investments
subsistence and travel
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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reliable financial systems which are understandable
and auditable
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cash management
budgetary management
revenues and expenses
debtors and creditors
fixed assets
stores
payroll
credit control
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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general systems
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PMS with performance controls
workable political and administrative structures
delegations
statistical systems
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human resources
service delivery
distribution losses
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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proper reporting structure: internal and external
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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
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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ratios and benchmarks
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based on own past experience or experience
comparable enterprises
determined according to own performance objectives
industry norms: tread with caution
(generic formulae based on averages)
of
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RISK MANAGEMENT
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Counters to risk: good governance
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sound control environment
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division of responsibilities
budget comparatives
fixed assets
stores
payments
procurement
cash
accounting reconciliations
financial regulations
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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insurance
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financial protection against consequences of unforeseen
events
reliable claims statistics
public liability, movable fixed assets, current assets
internal reserve
reinsurance
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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internal audit
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resources (human and equipment)
skills
knowledge
independence
statutory requirement: risk-based audit plan for each financial year
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internal controls
accounting procedures and practices
risk and risk management
performance management
loss control
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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audit committee
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independence
skills
knowledge
advisory role
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internal audit
financial controls
accounting policies
risk management
quality of financial reporting
performance management
effective governance
“PRAGMATICS” OF MUNICIPAL
RISK MANAGEMENT
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Counters to risk: good governance
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roles of Province and National Treasury
good work ethic
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probity
commitment
transparency and accountability
codes of conduct