1. RISK MANAGEMENT IN MUNICIPALITIES
INCA LOCAL GOVERNMENT
SUMMER SCHOOL 2004
Lucas Opperman
Director: LGC Consultants
November 2004

2. GENERAL APPROACH TO RISK MANAGEMENT
Risk categories
Strategic
Operational
External
Physical
Financial

3. 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

4. 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)

5. 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

6. “PRAGMATICS” OF MUNICIPAL RISK 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

7. “PRAGMATICS” OF MUNICIPAL RISK 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)

8. “PRAGMATICS” OF MUNICIPAL RISK 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)

9. “PRAGMATICS” OF MUNICIPAL RISK MANAGEMENT
Causes of risk
human frailty: crime, negligence, mismanagement
poor control environment
change
size and complexity
political divisiveness

10. “PRAGMATICS” OF MUNICIPAL RISK 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

11. “PRAGMATICS” OF MUNICIPAL RISK 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

12. “PRAGMATICS” OF MUNICIPAL RISK 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

13. “PRAGMATICS” OF MUNICIPAL RISK 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

14. “PRAGMATICS” OF MUNICIPAL RISK 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

15. “PRAGMATICS” OF MUNICIPAL RISK 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)

16. “PRAGMATICS” OF MUNICIPAL RISK MANAGEMENT
Counters to risk: good governance
sound control environment
division of responsibilities
budget comparatives
fixed assets
stores
payments
procurement
cash
accounting reconciliations
financial regulations

17. “PRAGMATICS” OF MUNICIPAL RISK 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

18. “PRAGMATICS” OF MUNICIPAL RISK 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

19. “PRAGMATICS” OF MUNICIPAL RISK 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

20. “PRAGMATICS” OF MUNICIPAL RISK MANAGEMENT
Counters to risk: good governance
roles of Province and National Treasury
good work ethic
probity
commitment
transparency and accountability
codes of conduct