Inculcating Ethical Culture through Governance Processes for Sustainable Service Delivery

1. MSCOA Risk management Inculcating ethical culture through governance processes for sustainable service delivery Audit & risk indaba Presented by National Treasury: Chief Directorate Local Government Budget Analysis – 20 June 2017

2. WORKSHOP AGENDA • Introduction • mSCOA - High-level overview • mSCOA and Risk Management • Discussion - the way forward

3. INTRODUCTION – RISK MANAGEMENT • A management function dealing with the uncertainties of pure risk, the consequences and the impact thereof on service delivery • A management function with the objective of protecting people and assets by eliminating or minimising the potential for loss from pure risk and the provision of resources to recover from losses that do occur • A management function with the objective of propagating a corporate culture in which there is an awareness of the effects risk exposure has on the organisation, and which results in the introduction of deliberate measures to minimise the effects thereof

4. INTRODUCTION – RISK MANAGEMENT Risk: • Event or incident • Timing is uncertain • Outcome can be • Does mSCOA meet these criteria? Neutral Positive Negative

5. mSCOA Risk Management • Mention at least five (5) risks associated with mSCOA implementation and identify the possible outcomes thereof. • Keep these handy as we will be referring back to them several times during the afternoon. ? Let’s share experience/ ideas

6. MSCOA – High-level OVERVIEW

7. 7 The seven (7) mSCOA Segments: an Overview Municipal Standard Classification: Against which organisational vote or sub-vote (in the municipality’s unique organisational structure) should the transaction be recorded? Non-mandatory Project: Does the transaction relate to a specific project, and if so, what type of project? Capital/ Operational/ Default Ensures that all projects in the IDP are aligned to the budget. Function: Against which function or sub-functions should the transaction be recorded? Enforces the Constitution, IMF, GFS classification, and Municipal Structures Act. Item: What is the nature of the transaction to be recorded?: Revenue/ Expenditure/ Gains and losses/ Liabilities/ Net Assets. Enables the traditional financial reporting and reconciliations. (The Segment that most practitioners are traditionally familiar with.) Costing: Introduces management accounting/ tariff modelling. What is the impact of an item on services? Allows a municipality to redistribute primary cost between functions. Fund: What source will fund the transaction and from which source is the revenue received? Aligns Revenue and Expenditure to reflect cash flow. Region: Which geographical area is deriving the benefit from the transaction? Administrative or Head office/ Wards/ Whole of Area – Country/Province/ Whole of the Metro/District/Municipality

8. mSCOA – HIGH–LEVEL OVERVIEW • A financial classification framework • A system upgrade/ re-implementation/ replacement • Upgrade of hardware and connectivity • Review and update of policies and procedures • Time – regulated in April 2014, go live 1 July 2017 • Extent – affects all financial management and internal control systems • Requirement – seamless integration • Impact – organisational reform

9. mSCOA seamless integration

10. mSCOA Risk Management • Do you know the milestone requirements leading up to 1 July 2017? • Do you know the current status of your municipal implementation? • Will your municipality make the deadline? • Do you have an action plan for 1 July 2017? ? Let’s share experience/ ideas

11. MSCOA and Risk management

12. mSCOA and Risk Management Risk evaluation: • Possible outcomes • Frequency • Severity (consequences) • Mitigating measures • Residual risk • Risk treatment • Cost of risk

13. mSCOA Risk Management • Look at the risk(s) you listed earlier and update the possible outcomes, if necessary. • Attach a frequency and severity value to these risks using your current municipal methodology. • Evaluate the mitigating measures you have in place. ? Let’s share experience/ ideas

14. mSCOA and Risk Management Risk treatment: • Avoidance (do not engage in activities) • Elimination (eliminate the potential of loss) • Reduction (reduce the likelihood of occurrence or severity of the resultant loss) • Transfer Risk management options: • Physical options • Procedural measures • Education and training • Legal procedures

15. mSCOA Risk Management • Select suitable risk treatments AND risk management options for the identified risk(s). ? Let’s share experience/ ideas

16. mSCOA and Risk Management Risk Management Objectives: • Financial – reduce the total cost of risk • Resources – protect assets, physical and emotional well being of employees • Stakeholders, customers, community, public Cost of risk: • Insurance cost • Opportunity cost • Self funding cost • Risk control cost • Administrative cost

17. mSCOA Risk Management • Can we now cost the risks we have identified? ? Let’s share experience/ ideas

18. MSCOA and Risk management: The way forward?

19. mSCOA Risk Management • In relation to the objectives of risk management and our municipal risk appetite, what is the way forward? • What am I taking home from this Audit and Risk Indaba? ? Let’s share experience/ ideas

20. Questions

21. Thank you for the opportunity to discuss mSCOA – Risk Management with you