INTERNAL AUDIT & RISK MANAGEMENT ROLE IN PROVISION OF SUSTAINABLE SERVICES

1. INTERNAL AUDIT & RISK MANAGEMENT ROLE IN PROVISION OF SUSTAINABLE SERVICES Institute of Municipal Finance Officers & Related Professions

2. INTRODUCTION • Definition of RISK MANAGEMENT? • “the culture, processes and structures that are directed towards realising potential opportunities whilst managing adverse effects” Institute of Municipal Finance Officers & Related Professions

3. INTRODUCTION (Cont.…) • What is Risk Management? • A continuous, proactive and systematic process, effected by a municipality’s executive authority, accounting officer, management and other personnel, applied in strategic planning and across the municipality, designed to identify risks and manage those risks, to the extent necessary and possible, to provide reasonable assurance regarding the achievement of the municipality’s objectives. Institute of Municipal Finance Officers & Related Professions

4. ENTERPRISE RISK MANAGEMENT (ERM) • ERM in an organisation includes the methods and processes used to manage risks and seize opportunities related to the achievement of their objectives. • ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives (risks and opportunities), assessing them in terms of likelihood and impact, determining a response strategy, and monitoring progress. By identifying and proactively addressing risks and opportunities, organisations protect and create value for the organisation, its employees, customers, regulators, and society overall. Institute of Municipal Finance Officers & Related Professions

5. ENTERPRISE RISK MANAGEMENT (ERM) Cont.….. • ERM can also be described as a risk-based approach to managing an organisation, integrating concepts of internal control, and strategic planning. • ERM is evolving to address the needs of various stakeholders, who want to understand the broad spectrum of risks facing complex organizations to ensure they are appropriately managed. Institute of Municipal Finance Officers & Related Professions

6. ENTERPRISE RISK MANAGEMENT (ERM) Cont.….. • The ERM approach is based on the COSO Risk Management Framework. • The implementation of enterprise-wide risk management is guided by the methodology that allows for a consistent approach to be applied by all municipalities and municipal entities and facilitates the interaction, on risk management matters, between the various institutions and functional areas within the institutions. • COSO Framework consists of eight interrelated components. These are derived from the way management runs an enterprise and are integrated with the management process. These components are encompassed in the following diagram: Institute of Municipal Finance Officers & Related Professions

7. ENTERPRISE RISK MANAGEMENT (ERM) Cont.….. Institute of Municipal Finance Officers & Related Professions

8. INTERGRATING RM, PLANNING & AUDIT Institute of Municipal Finance Officers & Related Professions

10. INTERGRATING ERM WITH PLANNING AND PMS INTERGRATING ERM WITH PLANNING AND PMS Institute of Municipal Finance Officers & Related Professions

11. The inter-relationship of performance planning/budgeting and performance management

12. PERFORMANCE HIERARCHY Institute of Municipal Finance Officers & Related Professions

13. WHY MANAGE RISKS? • Risk management is pro-active and preventive – enabling a municipality to achieve its objectives with greater certainty. • A robust risk management process aims at increased awareness, transparent evaluation, and sound mitigation of risks facing a municipality. • As a management tool, an integrated risk management framework assists in achieving objectives more efficiently. Risk management as a management tool also promotes effective and efficient resource utilization. Institute of Municipal Finance Officers & Related Professions

14. WHY MANAGE RISK? (cont.…) • We all manage risk! • Non-smokers – avoid most of the risk • Smokers – accept or absorb the risk • Quitters – mitigate or control the risk • Insurance - transfers the risk. Institute of Municipal Finance Officers & Related Professions

15. RISK MANAGEMENT OBJECTIVES To identify and prioritise risks arising from municipal strategy and operations. Determine level of risk acceptability to the municipality. Design and implement risk mitigation or management strategies. Continually monitor and review risk and appropriateness of risk practices. Contribute to good governance. Institute of Municipal Finance Officers & Related Professions

16. WHY IS RISK MANAGEMENT IMPORTANT? • It is integrated into municipal operations • Efficient and effective service delivery • Informed strategic and operational planning • Enhances governance and accountability in decision making • Limits the number of operational surprises Institute of Municipal Finance Officers & Related Professions

17. BENEFITS OF RISK MANAGEMENT • It’s key benefits: • • promotes effective and efficient service delivery; • • provides a more rigorous basis for strategic management; • • objectives are more likely to be achieved; • • damaging problems are less likely to happen; • • beneficial opportunities are more likely to be achieved. Institute of Municipal Finance Officers & Related Professions

18. BENEFITS OF RISK MANAGEMENT Cont.…. • It’s potential benefits (when successfully implemented): • • supporting strategic and business planning; • • supporting effective use of resources; • • promoting continuous improvement; • • fewer shocks and unwelcome surprises; • • quicker grasp of new opportunities; • • enhancing internal communications; • • reassuring stakeholders; • • helping focus the internal audit programme; Institute of Municipal Finance Officers & Related Professions

19. ENTERPRISE RISK MANAGEMENT ENVIRONMENT • In order to ensure the inclusion of all the factors impacting on Risk Management within the municipality, it is important to identify the environment within which the municipality operates. • As with most municipal disciplines the risk management environment has altered substantially and requires a complete review of current polices, practices and assumptions. Institute of Municipal Finance Officers & Related Professions

20. RISK ENVIROMNENT IN MUNICIPALITIES Institute of Municipal Finance Officers & Related Professions

21. ENTERPRISE RISK MANAGEMENT ARCHITECTURE • Any successful implementation of Enterprise Risk Management is dependent on a structure that considers various interrelated and inter-dependent components. The National Treasury Public Sector Framework (National Treasury, 2010) adopts the following architecture, consisting of: • Process framework • Drivers • Enablers • Implementers • Support • Tools and technology • Assurance providers • Oversight framework Institute of Municipal Finance Officers & Related Professions

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23. CHALLENGES WITH RM COMMITTEES • Inadequate risk management skills amongst committee members and management • Poor support from Senior Management regarding RM processes • Poorly defined RM methodologies • Inadequate risk monitoring • Management override Institute of Municipal Finance Officers & Related Professions

24. RISK MANAGEMENT OVERSIGHT STRUCTURE • A risk management reporting and communication structure should be implemented to ensure oversight and accountability for ERM. • The following diagram depicts an example of a reporting and communication structure. In the absence of a Risk Officer, the Departmental champions will report to the MANCO Risk Committee. Institute of Municipal Finance Officers & Related Professions

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26. ROLES, RESPONSIBILITIES & GOVERNANCE Institute of Municipal Finance Officers & Related Professions

27. ROLES, RESPONSIBILITIES & GOVERNANCE (Cont.….) Institute of Municipal Finance Officers & Related Professions

28. ROLES, RESPONSIBILITIES & GOVERNANCE (Cont.….) Institute of Municipal Finance Officers & Related Professions

29. ROLES, RESPONSIBILITIES & GOVERNANCE (Cont.….) Institute of Municipal Finance Officers & Related Professions

30. CONCLUSION • Risk decisions and organizational cultures are complex processes and systems. There’s a need for a common methodology and approach to address risk management at all levels of the public sector. • Other recommendations include better risk identification, the use of third parties in assisting the development of municipal plans and dealing with specific risks that are relevant to the municipality. • Better understanding and management of strategic risks can lead to more effective strategy development and planning ultimately leading to better communities and provinces. • Successful implementation of effective, efficient and transparent systems of risk management that includes all components of ERM, supported by well constituted Risk Management Committees assist municipalities to provide sustainable services. Institute of Municipal Finance Officers & Related Professions

31. Thank You! Institute of Municipal Finance Officers & Related Professions