1. Risk Management - “Local Government Pitfalls.” IMFO – Sustainability Workshop Risk Management 30 March 2012 www.pwc.com/za/en/consulting

2. 1 The “big” picture 1 2 Why Risk Management? 3 3 Enablers – policy, strategy, structure, capacity, tools and funding 4 4 Enterprise Risk Management 9 5 Risk identification 11 6 Risk assessment 13 7 Risk response 15 8 Communication/reporting 17 9Roles and responsibilities 19 10Questions 21 Page SectionOverview Table of Contents

3. PwC 30 March 2012 Section 1 The “big” Picture 1 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

4. PwC 30 March 2012 The “big” picture Maintain an effective, efficient and transparent systems of risk management Legislative mandate - MFMA sec 62(1)(c)(i) Whom - Accounting officers Public Sector Risk Management Framework Section 1 – The “big” picture 2 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

5. PwC 30 March 2012 Section 2 Why Risk Management? 3 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

6. PwC 30 March 2012 Why Risk Management? 1.Sustainable service delivery 2.Reduction in fruitless and wasteful expenditure 3.Innovation 4.Informed decision making 5.Prevent fraud ….and corruption 6.Enhance project and programme management 7.Enhance oversight capability Section 2 – Why Risk Management? 4 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

7. PwC 30 March 2012 Section 3 Enablers 4 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

8. PwC 30 March 2012 Enablers Section 3 – Enablers 5 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

9. PwC 30 March 2012 Enablers Section 3 – Enablers 6 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

10. PwC 30 March 2012 Enablers Section 3 – Enablers 7 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

11. PwC 30 March 2012 Enablers Section 3 – Enablers 8 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

12. PwC 30 March 2012 Section 4 Enterprise Risk Management 9 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

13. PwC 30 March 2012 Enterprise Risk Management Institutional application of risk management Interdependent dynamic risks View of internal and external risks Identify and communicate external risks with other organs of state “Risks must be considered from strategy to service delivery outcomes” Section 4 – Enterprise Risk Management 10 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

14. PwC 30 March 2012 Enterprise Risk Management Why Enterprise Risk Management initiatives fail Risk Management strategies are developed in silos Lack of buy-in from management (Funding) Bottom-up rather than top-down approach One person is tasked with performing everything ERM is perceived to be an CRO issue Risk information is developed without input from the business Poor ERM culture in the organisation Lack of change and maintenance procedures Section 4 – Enterprise Risk Management 10 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

15. PwC 30 March 2012 Section 5 Risk Identification 11 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

16. PwC 30 March 2012 Risk Identification “process to identify and document risks” Must be ongoing Identify all risk – in control or not? Risk workshops, interviews Use internal and external audit reports Financial and data analysis Benchmarking Focus on : Strategic risks Operational risk Project risks Section 5 – Risk Identification 12 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

17. PwC 30 March 2012 Section 6 Risk Assessment 13 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

18. PwC 30 March 2012 Risk Assessment “quantify and qualify risks” Assist to prioritise risks Likelihood of occurrence and impact objectives 3 stages: Inherent Residual risk to determine the level of risk after mitigation Residual risk vs appetite Assessment at least once a year Section 6 – Risk Assessment 14 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

19. PwC 30 March 2012 Section 7 Risk Response 15 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

20. PwC 30 March 2012 Risk Response “reduce or eliminate risks” Exploit opportunities Range of options for mitigation Response strategies for all material risks Strategies must consider: Avoiding risks – abort activity Treatment – enhance internal control Transfer – co- sourcing Accepting – cost and consideration rule out alternatives Exploiting – turn the risk on its head! Designing control activities to mitigate risks – internal control architecture to prevent, detect, and correct Section 7 – Risk Response 16 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

21. PwC 30 March 2012 Section 8 Communication / Reporting 17 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

22. PwC 30 March 2012 Communication / Reporting Communication equips officials to identify, assess and respond to risks This is done through dissemination of information and communicating responsibilities and actions Monitoring will inform whether the risk management processes are functioning effectively Responsibilities are executed Strategies are producing results Improvement is risks management system has a direct correlation with performance Challenge: Lack of communication, in effective and uncertainty of who should be the monitor Section 8 – Communication / Reporting 18 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

23. PwC 30 March 2012 Section 9 Roles and Responsibilities 19 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”

24. PwC 30 March 2012 Roles and Responsibilities Section 9 – Roles and Responsibilities 20 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.” Framework clearly sets out the functions of: Executive Authority The Accounting officer Audit Committee Risk committee CRO Management All officials Internal and external audit Challenge still remains in the understanding of functions and this is because of the Buy in and the perception of RM

25. PwC 30 March 2012 Section 4 Questions 21 IMFO – Sustainability Workshop Risk Management - “Local Government Pitfalls.”