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RISK MANAGEMENT IN MUNICIPALITIES. INCA LOCAL GOVERNMENT SUMMER SCHOOL 2004. Lucas Opperman Director: LGC Consultants November 2004. GENERAL APPROACH TO RISK MANAGEMENT. Risk categories Strategic Operational External Physical Financial. GENERAL APPROACH TO RISK MANAGEMENT.

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risk management in municipalities

RISK MANAGEMENTIN MUNICIPALITIES

INCA LOCAL GOVERNMENT

SUMMER SCHOOL 2004

Lucas Opperman

Director: LGC Consultants

November 2004

general approach to risk management
GENERAL APPROACH TO RISK MANAGEMENT
  • Risk categories
    • Strategic
    • Operational
    • External
    • Physical
    • Financial
general approach to risk management3
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
general approach to risk management4
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)
general approach to risk management5
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
pragmatics of municipal risk management
“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
pragmatics of municipal risk management7
“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 municipality’s interests (wrong tenders, wrong strategic decisions, wrong appointments)
pragmatics of municipal risk management8
“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 municipality’s interests (wrong tenders, wrong strategic decisions, wrong appointments)
pragmatics of municipal risk management9
“PRAGMATICS” OF MUNICIPALRISK MANAGEMENT
  • Causes of risk
    • human frailty: crime, negligence, mismanagement
    • poor control environment
    • change
    • size and complexity
    • political divisiveness
pragmatics of municipal risk management10
“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
pragmatics of municipal risk management11
“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
pragmatics of municipal risk management12
“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
pragmatics of municipal risk management13
“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
pragmatics of municipal risk management14
“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
pragmatics of municipal risk management15
“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)
pragmatics of municipal risk management16
“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
pragmatics of municipal risk management17
“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
pragmatics of municipal risk management18
“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
pragmatics of municipal risk management19
“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
pragmatics of municipal risk management20
“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