WELCOME TO THE SAIPA OPERATIONAL RISK IN THE PUBLIC SECTOR CPD SEMINAR Thank you for joining us today. The SAIPA Operational Risk in the Public Sector CPD seminar discusses the risks of malpractices and corruption in the public sector and the financial implications and non-service delivery. Public sector organisations will be facing substantial strategic risks in the coming years in how to best allocate resources emerging from natural resources, as well as understanding the factors of increasing population growth, demands placed on government and out-migration. The seminar will provide a framework that supports the objectives public sector institutions, including municipalities, through providing information and guidance to enable the implementation and maintenance of effective systems of Enterprise Risk Management. Overview Due to the global financial crisis and the economic 'meltdown', risk management is receiving tremendous attention and is regarded by many as an effective mechanism to 'weather' organisations throughout the current difficult and uncertain economic times. This seminar provides a basis for government and public officials to effectively deal with uncertainty associated risk and/or opportunity by enhancing institutional capacity. Today you will learn the fundamentals of risk management and how to apply risk related concepts to suit your own unique environments, and demonstrate competence in: • Establishing organisational and governance risk structure • Develop risk policies and procedures • Applying risk management approaches • Establishing risk management process • Identifying and assessing risks • Determining and implementing risk controls • Utilising risk techniques, tools and systems to minimise risks The Operational Risk in the Public Sector CPD seminar will provide insight into: • Introduction to Risk Management • Risks in Perspective • Sound Risk Management Principles • Operational Risk management • Financial Risk Management Upcoming SAIPA CPD Seminar topics – book your space now Topic CPD Category CPD hours Tax for Public Sector Tax 4.3 hours GRAP 2 Accounting 4.3 hours Please log onto your SAIPA Briefcase to confirm your attendance at the seminars at dates and venues in your area. Your feedback is important to us Please assist us by completing the evaluation form at the back of this booklet and handing it to your Regional Marketing Officer, or placing it at the registration desk, when you leave.
OPERATIONAL RISK IN PUBLIC SECTOR CPD – PUBLIC SECTOR JUNE 2018 OPERATIONAL RISK IN PUBLIC SECTOR 2 1
RISK IN PUBLIC SECTOR ‐ INTRODUCTION ‘Governments have always had a critical role in protecting their citizens from risks. But handling risk has become more central to the working of government in recent years. The key factors include: addressing difficulties in handling risks to the public; recognition of the importance of early risk identification in policy development; risk management in programmes and projects; and complex issues of risk transfer to and from the private sector’ OPERATIONAL RISK IN PUBLIC SECTOR 3 RISK IN PUBLIC SECTOR ‐ OVERVIEW OPERATIONAL RISK IN PUBLIC SECTOR 4 2
RISK IN PUBLIC SECTOR ‐ LEGISLATION MFMA, S 62 (1) ( c ) states: “the accounting officer must ensure that the municipality has and maintains effective, efficient and transparent systems of financial and risk management and internal control” S 78 and 105 further assigns the responsibilities to other officials to ensure “effective, efficient, economical and transparent use of financial and other resources within that official’s area of responsibility” S 165 (2) (b) requires internal audit unit to advise the AO on matters related to……(iv) risk and risk management OPERATIONAL RISK IN PUBLIC SECTOR 5 RISK IN PUBLIC SECTOR ‐ LEGISLATION MFMA, S 62 (1) ( c ) states: S166 (1) requires audit committee to advise municipal council, political office ‐ bearers, AO and management staff on matters related to …(ii) risk management King IV Code on Corporate Governance and Public Sector Risk Management Framework states: “The Council/ Board is responsible for the total process of risk management, as well as for forming its own opinion on the effectiveness of the process.” OPERATIONAL RISK IN PUBLIC SECTOR 6 3
RISK IN PUBLIC SECTOR Risk is a matter of perception, and it is important to have consensus over the relative significance of risks across the organisation. Risk management is a key element of corporate governance in public sector organisations, in terms of their structures, processes, corporate values, culture and behaviour. It is a cornerstone of an organisation’s architecture for strategic and operational success and needs to fit well as a management process within the governance framework. OPERATIONAL RISK IN PUBLIC SECTOR 7 RISK IN PUBLIC SECTOR Generally it is true that the higher the risk, the higher the reward – usually in the form of profits. Public sector strategic objectives are different – for example, councils typically have to balance their duties of citizen protection, well ‐ being and prosperity with the imperative to deliver services very differently. Citizens are taxpayers and public bodies have legal obligations for many services, adding further complexity to the risk management balancing act in the public sector. OPERATIONAL RISK IN PUBLIC SECTOR 8 4
RISK IN PUBLIC SECTOR A lack of integration, where risk management is applied as an add ‐ on rather than being integrated with other management processes, or where there is a ‘silo’ rather than a strategic approach at the departmental level A lack of systematic approach, often arising from an incorrect belief that risk management is automatically embedded in day ‐ to ‐ day decisions; an absence of clear reporting to senior management and the audit committee tends to accompany this weakness OPERATIONAL RISK IN PUBLIC SECTOR 9 RISK IN PUBLIC SECTOR A misunderstanding of risk management, its purpose and relevance for the organisation, with some regarding it as just a compliance exercise; poor connectivity over risk between the top and bottom levels of an organisation is a further issue An abdication of responsibility, which often arises from individuals’ lack of interest in or awareness of risk; this can arise from poorly written job descriptions and a weak or absent risk management process. OPERATIONAL RISK IN PUBLIC SECTOR 10 5
RISK IN PUBLIC SECTOR ‐ CAUSES • Competence • Internal capacity & control & intention / non ‐ behaviour compliance PEOPLE PROCESS SYSTEMS EXTERNAL • PEST • Structure & failures OPERATIONAL RISK IN PUBLIC SECTOR 11 RISK IN PUBLIC SECTOR ‐ CAUSES Breakdown in internal control that could prevent the organization from achieving its objective; Reactive responses to potential risks, rather than proactive; Changing/ new risks are not adequately controlled and managed; Internal control practices become outdated with limited account taken of best practice development; OPERATIONAL RISK IN PUBLIC SECTOR 12 6
RISK IN PUBLIC SECTOR ‐ MANAGEMENT To be effective, risk management in the public sector must: Fit well with and support other corporate management processes Be an express part of operational management and support cross ‐ organisational links Be understood, thought about and contributed to by all in the organisation in a ‘think first, think risk’ culture Be based on a clear, systematic process where individuals are held to account Be fit for purpose in ensuring effective change governance . OPERATIONAL RISK IN PUBLIC SECTOR 13 RISK IN PUBLIC SECTOR ‐ ACCOUNTANT The public sector finance professional should be an active player in the organisation’s risk management process. Accountants’ presence in multiple roles across the sector offers extensive opportunities to achieve this: The CFO leads the financial strategy for the organisation with comprehensive coverage of all significant risks that might impact its implementation. Internal audit professionals take a risk ‐ based approach both in their reviews and in auditing the risk management process for effectiveness. The accountant leads and supports risk management thinking and culture in service and corporate departments across the organisation. OPERATIONAL RISK IN PUBLIC SECTOR 14 7
BENEFITS OF RISK MANAGEMENT OPERATIONAL RISK IN PUBLIC SECTOR 15 RISK MANAGEMENT ‐ COMPARISON Traditional ERM • Risk as individual hazards • Risk in the context of strategy • Risk identification and • Risk portfolio development assessment • Focus on discrete risks • Focus on critical risks • Risk mitigation • Risk optimisation • Risk limits • Risk strategy • Risk with no owners • Defined risk responsibilities • Haphazard risk quantification • ‘Risk is not my responsibility’ • ‘Risk is everyone business’ OPERATIONAL RISK IN PUBLIC SECTOR 16 8
RISK IN PUBLIC SECTOR ‐ ERM OPERATIONAL RISK IN PUBLIC SECTOR 17 RISK MANAGEMENT STRATEGY OPERATIONAL RISK IN PUBLIC SECTOR 18 9
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